‘Death spiral’ looms for Zimbabwe economy
harare — Zimbabwe’s crippling cash shortage has left a black hole in the financial system that’s crushing the rest of the economy.
“We deposit the cash and it becomes theoretical, ephemeral,” Mohamed Salam, who owns several small stores selling building supplies in Harare, the capital, said in an interview. “My bank balance says it’s there, but it isn’t. I can make payments electronically to local suppliers, but I can’t pay foreign suppliers.”
The liquidity squeeze has left companies unable to pay their workers in cash and foreign suppliers, driving many out of business, and added to the ranks of more than three million people who’ve become economic exiles. The economy probably shrank 0.3 per cent last year and is set to contract 2.5 per cent this year, according to the International Monetary Fund.
Zimbabwe abandoned its own currency eight years ago and adopted mainly the dollar, initially halting hyperinflation. Now, with a floundering economy and a strong dollar stoking imports and curtailing exports, banknotes have virtually disappeared, prompting the central bank to order private lenders to cap customer cash withdrawals at $150 a week. While the Reserve Bank estimates about $4 billion is circulating in the economy, Confederation of Zimbabwe Industries President Busisa Moyo says the amount may be as little as $100 million.
“The economy is in what could turn into a death spiral,” Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore who studied the advent of hyperinflation in Zimbabwe, said in an e-mailed response to questions. He blamed the government of President Robert Mugabe, 92, for being “so incompetent and corrupt and prone to making bad economic policies.”
A dearth of foreign exchange forced Delta Corp and telecommunications company Econet Wireless Zimbabwe Ltd to suspend dividends and halt payments to foreign suppliers late last year. Both companies said they don’t foresee any operational disruptions. Econet shareholders agreed to a company plan to raise $130 million in foreign currency.
A number of retailers and other businesses are offering big discounts to cash-paying customers and limit the amounts they can charge on credit cards or refuse to accept them altogether.
“The country has run out of money and we have completely lost the ability to pay for imports,” said John Robertson, an independent economist in Harare. “This comes against a backdrop of falling productivity as companies fail to access vital inputs because there’s no foreign currency to pay for them. As long as government continues to do things that discourage both local and foreign investment into the productive sector, the situation can only get worse.” — Bloomberg